The Financial Student

Keep These Senior Year Expenses in Mind

If you’re a senior in high school, you’re probably having a great time right now. The school year is almost have over, and you can begin to taste graduation, a.k.a freedom. But senior year doesn’t just bring along memories that last a lifetime and endless parties. There are a ton of expenses to be aware of. If you aren’t a senior yet, consider this a planning list.

Graduation cap and gown - This is typically the minimum schools require you to purchase in order to participate in the graduation ceremony.

Graduation Merchandise – While you’re purchasing a gap and gown, you’ll be presented with numerous opportunities to buy senior t-shirts, sweatpants, hoodies, key chains, picture frames, and more overpriced crap. These will add up…fast!

Graduation Party - You’ll need food and beverages, invites, decorations, etc.

College application fees - This caught both my dad and me off guard. I would budget at least $100 towards this. I “only” applied to 3 schools and application fees were somewhere around $120. Some schools charge $50 while others only charge $20 or $30. If you honestly cannot pay the fees required, talk to your guidance counselor because they can usually figure out a solution.

Pictures – Traditionally, pictures are taken during the summer or fall of your senior year. This can balloon to giant costs if you (or your parents) add on a bunch of different outfits and extra prints. Mine cost around $350, but I know kids at school who have easily spent $1000 or more.

Yearbook - This isn’t a senior year only expense since most people purchase one every year, but the senior year edition is probably the one you’ll want the most. Be aware of extras like adding your name or symbols to the front cover. Jostens makes a ton of cash on these options.

Travel - For schools that offer a big trip (like the Spanish class going to Mexico), they’ll usually offer it senior year. Make sure to plan for this cost, it’ll likely be sizable. Also figure out if you want to go on a road trip over the summer before college starts. College visits can consume quite a bit of time and gasoline.

Even if you aren’t paying for most or any of these, let your parents know in advance. They might be planning for the cap and gown, but forgot about hundreds of dollars worth of pictures.

Are Kids Spoiled Brats Today?

This past holiday season I worked at a major clothing retailer. One of my co-workers (and now friend) would jokingly remark how spoiled I was. She wasn’t honestly criticizing me, but just pointing out the differences between how much financial assistance I’ve been given in high school compared to her experiences with money and parental help after graduating college without being able to secure a job. It really made me realize how much I have.

With that said, let me first acknowledge that parents probably spend more on their children today than they ever have before. As recent as the 1990s, there were no cell phone or Xbox Live bills. Gifts like iPods and laptop computers were non-existent. College was much cheaper than it is today, and not as many people were going. So her analysis probably isn’t wrong.

But does this mean kids are spoiled?

I don’t necessarily think so.

I don’t think having nice stuff or be given certain objects or opportunities is inherently bad. The problem is when kids and teens base their identity and attitude on those entities. There are students are my high school (and most schools in the country I’m sure) that are ridiculously stuck up. They, or more accurately their parents, have lots of money. The kids aren’t afraid to show it. People say they’re snobby not because they drive a Lexus, but because they act like they couldn’t drive anything “under” a Lexus.

Part of the “blame” rests with the parents. For example, what 16 year old is going to refuse a brand new car? I know I wouldn’t. The problem however isn’t just the car, it’s that the parents don’t make the kid realize how lucky they actually are. I know plenty of new drivers with nice cars that I wouldn’t consider spoiled. They understand that their parents work hard and have been successful enough to provide nice things. They don’t think they deserve the car. That’s the difference.

The other part deals with how relative a term like spoiled can be. In my community, any high school student driving an Escalade would automatically be considered spoiled. But in richer neighborhoods, that vehicle choice could be the norm.

My own situation is probably typical of what most middle class kids enjoy today. I saved up for a car using money I earned from my state’s 4-H program. But I don’t pay for gasoline or insurance. I doubt that I even could with a minimum wage job. (My car insurance is about the same as my dad and sister’s combined.) And of course I benefit from purchases my parents make, even if they aren’t strictly for me, like the plasma television I’m watching speed skaters compete on right now.

I may be privileged (especially if you compare my standard of living to a teen in a disadvantaged country), but I don’t think that makes me a spoiled brat. Ultimately, it’s the attitude that determines whether someone is spoiled or just lucky to have wealthy parents.

Anatomy of an Overdraft

“That won’t happen to me”.

This statement rang out in my mind the day I opened up my 1st checking account. As I politely listened to the bank employee explain to me that if I spent more money than I had, I would overdraft and owe the bank 35 dollars, I decided that I would never need this piece of information.

I would never owe the bank 35 dollars because I wasn’t going to spend more money than I had. I was never going to fall behind on my checkbook register entries. And I was never going to buy stupid crap and waste money.

I was wrong.

Here’s the setup:

In June 2008, I went to Indiana for cross country camp with my teammates.

Throughout the week, I used my debit card to pay for food at the numerous fast food restaurants we visited. No problems there. Then, the Walmart trip happened. While there, I found a FM transmitter for my iPod that I had to have for the five hour car ride back to Ohio. And it was only 20 bucks. So I bought it.

I arrive back home on a Saturday afternoon.

On Sunday, I check my account balance. It’s something like 35 dollars. I go to Kohl’s and purchase a gift for Father’s Day. I knew this would bring my account down to just a few dollars.

On Monday, I call my bank’s automated phone system to check my account balance. The computerized voice tells me chillingly that “Your current account balance is neg-a-tive seventy dollars.”

Um…no. That is not possible. I know my balance is low…like single digits low, but absolutely not NEGATIVE.

But it was…so what happened?

Two fast food transactions I made with my debit card didn’t actually go through the system until Monday. So when I called the bank on Sunday, it told me I had around $35.00 dollars. Except I didn’t. $15.00 dollars had already been spent on food at Wendy’s and McDonald’s, the computer just didn’t know about it yet.

Then I spent 27 dollars on my dad’s gift. And the fast food  transactions were processed.

Banks process transactions highest dollar amount to lowest dollar amount, so I didn’t overdraft on the gift purchase. I over drafted on the two fast food purchases.

So now, there’s 70 bucks down the drain. (35 overdraft fee X 2=$70.00)

But wait, there’s more!

Once I knew my account was negative, I sighed heavily and said “OK. I messed up. I’ll make a trip to the bank in a day or two and withdraw some money from savings and put it in checking.”

My bank charges me 8 dollars per day that my account is negative. So by waiting a day to get off my ass and fix a mistake, I lost 8 more dollars.

Total damage= $78.00. Ouch.

Looking back, I realize that I made a few obvious mistakes.

Mistake #1:

Relying on mental math. I was going around the entire week adding up rough amounts that weren’t very accurate. Then, I went to Kohls like an idiot knowing full well that my balance was dangerously low.

Mistake #2

I wasn’t keeping up with my checkbook register. If I had been,  I would have known to stop using my debit card before I over drafted.

Mistake #3

Not knowing what fees my bank charged. I honestly had no idea that I would be charged extra fees for leaving my account overdrawn. Always read the fine print!

So there you have it, an overdraft from start to finish. Just how easy is it to overdraft?  Very. And yes, it can happen to you and it will if you aren’t careful.

8 Ways to Kick Financial Ass in High School

High school might be all about the hot cheerleaders, but that doesn’t mean you can’t get a head start on your finances. High school is one of the best times to get your finances in order because it’s probably never going to be easier.

1. Open a checking and savings account if you don’t have one yet. For savings, I’m a fan of ING Direct (leave a comment and I’ll get you $25 just when you open the account!). But mainly, just choose a bank that doesn’t charge a ton of fees. If you can’t drive yet, it’ll probably be easier to just use the same bank your parents do.

2. Start a business. I’m not saying you have to create the next Google, but it will never be easier to create a business than it is in high school. You have no mortgage or electricity bill to cover and hopefully no kids to provide for. This means you don’t have to make a typical “adult” salary. Give piano lessons, fix people’s computers, or create a new product no one has thought of yet.

3. Open a Roth IRA. If you make money, you can open Roth IRA and get a huge head start on retirement. I know retirement isn’t for a long time, but you’ll have much more money the sooner you start. Check out my post “Start Saving for Retirement with a Roth IRA” for more information.

4. Get good grades. This will help out you qualify for more college scholarships, if that’s the route you plan to take. Also, you’re more likely to be accepted to the college in the first place if your grades are high. Mainly, I would shoot for a final GPA of around 3.0 (a B average). That seems to be the minimum most scholarships want.

5. Save money. Assuming your expenses (car, insurance, gasoline, fun stuff) allow for it (if they don’t, stop spending so much!), save as much money as you can. If your parents are paying for basically everything, then you should have no problem saving 20%-50% of your income.

6. Get as much college credit as possible. Take AP courses if you can (assuming you can handle the extra work!), figure out if you can take general education classes at your community college, or see if you can do some sort of distance learning by taking online classes. I have a classmate who’s taken enough community college courses that he’ll have an Associate’s degree by graduation. Our high school covered the entire cost. Check this out for more information on AP courses and post secondary options.

6. Spend money carefully. Figure out if you want energy drinks every day (3 bucks a can adds up quick!) or an unforgettable senior road trip. Think experiences, not stuff.

7. Get a part time job. I’ve hated one of my part time jobs and loved the other, so it’s a toss up as to whether you’re going to enjoy this. But if you aren’t making money through other means, then start applying.

8. Try new things. Interested in singing? Check out drama club. Like running? Join the track team for a season. Take an elective class you normally wouldn’t. All of these things can help you find activities and hobbies you really enjoy. Plus, you’ll probably meet some cool new people. This will help you figure out what you might want to do with the rest of your life.

By the way, my school doesn’t have very many attractive cheerleaders. I’m understandably disappointed.

Credit CARD Act of 2009: What Young People Need to Know

Back in May, the United States Congress passed a piece of legislation called the “Credit Card Accountability Responsibility and Disclosure Act of 2009“. The law goes into effect today, so I thought it would be the perfect topic to discuss. Basically, this new law creates a lot more rules and policies that the credit card companies have to follow. One of the major pieces of the law concerns those who are 18 but not 21 yet, so this is important for all you about to graduate high school or enter college.

What’s New?

1. If you are not 21 years old, you cannot open a credit card account unless:

• You have a cosigner (mom, dad, grandparent, guardian, sugar momma, pimp, etc) 21 or over who can prove they have the income necessary to pay the bill should you decide not to pay.
• You yourself can prove that you have a high enough income to pay off the bill.

2. Companies are banned from giving away “free” t-shirts, frisbees, food coupons, one night stands, etc. near college campuses in order to get you to sign up for a credit card.

3. Pre-screened credit offers (those envelopes from Visa that say “You’re Approved!”) cannot be mailed to anyone under 21 years of age.

Thoughts

I won’t even pretend to be OK with the 1st one. I am so sick and tired of the government acting like 18 year olds aren’t legal adults. The ban on adults drinking alcohol is bad enough, but now something as potentially harmless as a credit card?  And apparently, from the way the law reads, 19 year olds have to prove their income but 35 year olds don’t. How is that logical?

Yes, I know that this will probably ensure that fewer young adults experience the horror of credit card debt, but where does the hand holding end? I might even argue that some credit card debt is beneficial. For every person who charged $30,000 dollars worth of crap and had to declare bankruptcy, there’s probably a hundred more who learned how to use credit responsibly after just a few bills. Either way, I’m a fan of personal responsibility and not rules.

For the second rule, I don’t have any problems. I honestly thought colleges would have put a stop to this a long time ago. Maybe enough parents didn’t complain?

Number three: THANK GOD! Less junk mail is always a plus.

Finally, I just find it a bit ridiculous that there’s no problem with allowing 16 year olds (sophomores in high school) to drive cars (which can easily KILL people) but giving a credit card to a 20 year old is suddenly punishable by a $2000 dollar fine. (That’s how much Visa or MasterCard could be charged if they allow say a 20 year old with no income to have a card.)

For more details, which apply to all credit card accounts and not just those held by 18-21 year olds, check out this easy to understand guide.

Getting the Most Out of Scholarships

Besides savings, the best way to finance college is through scholarships.

Scholarships don’t have to be repaid and are essentially free money, minus the time you spend to fill out the application. With scholarships, you can avoid becoming a slave to students loans or pursing questionable activities like selling drugs. I’m not judging though.

But as with all things in life where money is concerned, scholarships aren’t always straight forward and scams are definitely a possibility. Check out the following tips to receive as much money as possible without being conned.

1. You should not have to pay any sort of fee to apply for a scholarship. If a website or organization wants your money before you even get an application, run away.

2. Your first stop should be your high school’s guidance office. There they should have applications and information on a ton of opportunities. If your guidance office isn’t quite up to par, don’t be afraid to hit up other nearby schools. If that idea scares you, remember that every dollar you earn before college is one less dollar you have pay back…with interest.

3. Don’t count yourself out if you aren’t the world’s greatest student. Some scholarships actually exclude those with high grade point averages. There are people and organizations out there who want to help the “average” student succeed too.

4. Along the same lines as the previous tip, don’t worry if you’re just average when it comes to things like family situation, family income, and diversity. I’m a white male with middle class divorced parents so I’m not exactly the poster child for uniqueness, but there are plenty of scholarships that don’t require you to be Hispanic or in poverty.

5. Stop thinking scholarship and start thinking scholarships. I’ve heard classmates say “Yeah, I need to apply for a scholarship to pay for college.” No, you need to apply for many, many scholarships. And then you need to apply for a few more. The majority of aid is $500 here, $2000 there so just one is not going to put much of a dent in how much you owe.

6. Fill out the FAFSA. This isn’t really a specific scholarship tip, but the Free Application for Federal Student Aid is a must. You can’t possibly know what assistance you may or may not get if you don’t complete the application.

The Benefits of Direct Deposit

Are you running to the bank every time payday hits? Filling out deposit slips and signing checks every two weeks?

Stop.

There’s a better way. It’s called direct deposit.

Direct deposit uses the Automated Clearing House system to electronically deposit your paycheck into any checking or savings account you choose. This has a ton of benefits:

Faster- you will almost certainly receive your funds sooner through direct deposit. At my last job, I received my “paycheck” a whole 2 days before the paper checks would arrive.

Safer- it’s incredibly easy to lose a paycheck, especially if you don’t get to the bank immediately. Thefts happen. Wallets are pick-pocketed and cars get broken into. No petty thief is going to be able to steal your direct deposit.

Frugal-direct deposit means no more gas wasted on trips to the bank.

High tech- I think it’s just plain cool that technology can do this. Using paper for paychecks just seems old fashioned now.

I think the biggest benefit is just the simplicity of it. No more driving to the bank. No lost checks. The money is there automatically. And even more important: there’s no temptation to cash out part of the check.

I know what you’re saying.  “This is awesome, how do I set it up?”

It’s simple.

You Need:

• Your bank account number
• Your bank’s routing number
• Employment at a company that offers direct deposit

You can find this information on a check or in the paperwork you received when you opened the account.

Simply give a voided check (you void a check by writing “VOID” in big capital letters on the front of the check in pen)  to your boss or whoever manages your company’s payroll. If you work for a large corporation, you may be able to do all of this online.  If you don’t have any checks, you can just write down the two numbers and your place of employment will know what to do.

Once that’s completed, you’re done. No more work is necessary. You’ll start to receive your paycheck directly in your bank account within a pay period or two.

Exploring AP Classes: Cutting the Cost of College

Without a doubt, college is expensive. And finding ways to cut the cost can be difficult. But one option (probably) exists in your high school.

Called Advanced Placement courses, these are college level classes you take while in high school. At the end of the year, you have the option to take an exam that can earn you college credit.

How are These Classes Different than A Regular Class?

AP classes are without a doubt, harder than regular classes. That’s not to say they are impossible, but you will be required to complete more work. Not only is the work more challenging, but grading is usually harsher. The bare minimum will not get you an A. My personal opinion is that AP classes typically work like normal classes should. That is, only a few students will get an A, while most will receive a B or C. After all, an A should only be given for exceptional work, not average.

Many schools will weight your grade in an AP course. What does this mean? It means that your grade in an AP class is worth more than the same grade in a lower level class. For example, my high school weights AP classes by one GPA point. This means that a B is actually recorded on my transcript as an A. This also means that an A equals a 5.0 on a 4.0 GPA scale.

The exam at the end of the year is pretty grueling. I’d say it sucked more energy out of me than the ACT. Also, this exam costs $86.00 (as of 2009). While this seems like a lot of money just to take a test, realize that college tuition is MUCH higher. My community college charges $80.00 per credit hour. Considering that an AP Exam can earn you multiple hours of credit at many universities, the cost of an AP Exam is actually a deal.

Should I Take AP Classes?

Since AP courses do suck up a lot of time require actual work, consider them carefully. Talk to your teachers and guidance counselor to see if they think you’d excel in these types of classes. Many schools have GPA requirements before they will enroll you.

Ask yourself if you honestly want to be challenged. Ask yourself if you’re actually interested in whatever subject you’re considering. For me, I liked the idea of staying up until 1am to finish a paper (I didn’t do this often!). And I was OK with working hard in order to get a head start on some college classes. If these things don’t sound like a good time to you, don’t enroll in an AP course. I also tried to be practical and I was confident that I would do well on the exam. For me, a few sacrifices in high school were worth it if it meant I wouldn’t have to take an introductory course down the road.

To get a feel for what AP classes are like, check out the College Board’s official site. They have example test questions and explain what each course’s curriculum looks like.

Take home message – If you’re looking to be challenged and also want a chance to earn some college credits, strongly consider AP courses. But remember, straight A’s in regular or advanced classes will look better than F’s in an AP class on your transcript.

6 Tips for Staying Smart with Debit Cards

Debit cards (sometimes called check cards) can be a great way to manage your money. You might not be old enough to apply for a credit card, but you still want to buy stuff online. Or maybe you want an easy and convenient way to make day to day purchases without risking a late payment or interest charges.  Debit cards are great in these situations. But there are a few pitfalls that need to be avoided

1. Protect your PIN- Your Personal Identification Number is a 4 digit number that makes sure you’re the only one using your card. If someone else discovers this number and gains access to your card, you can kiss your money goodbye. Make this number hard to guess, but easy to remember. Choose a number that has a personal meaning for you or simply make up a random one and commit it to memory.

2. Keep your checkbook up to date- Just because you aren’t writing an actual check doesn’t mean you aren’t spending real money. Record every purchase or deposit you make. This will keep you from over drafting your account and paying a ridiculous fee.

3. Be aware of ATM fees- Using your debit card is a quick and easy way to get some cash. But be careful, if you go to an ATM that isn’t owned by your bank you’ll likely pay a 2 or 3 dollar fee. Keep this in mind when shopping for a bank. Look for one that has ATMs located all over the place.

4. Exercise caution at the pump- Who goes inside to pay for gas anymore? But be careful when you use a debit card at the pump. When you do, a hold is placed on your account. This is because when you swipe your card, the pump has no idea how much gas you’ll actually buy. With fill-ups easily going into the 50-100 dollar range, gas stations need to know that you have the money. To do this, they place oh, let’s say a 100 dollar hold on your account. But you only purchase $30.00 in gas. A day or two later the gas station will “release” the $70.00 back to you. But if in those two days you go on a huge shopping spree thinking you have an extra 70 dollars, you could easily overdraft your account.

6. Stay Protected- Typically, debit cards offer less protection if they’re ever stolen. With debit cards, you have 2 days to report your card stolen. If you do this, you’ll only be liable for up to $50.00. Wait more than 2 days though, and you’ll be on the hook for up to $500.00! These rules usually only apply to PIN based transactions. If a thief uses “your” signature to make a purchase, you should be entitled to Visa and Mastercard’s zero liability protection.

Carnival – Week of 2/15/2010

I upped my partipcation this past week by submitting articles to two different carnivals.

First, my post “Why The Visa Buxx Card is a Bad Deal” was included in The Carnival of Personal Finance over at Len Penzo.

Next, my post explaining “How to Do Your Taxes for Free, Even if You’re in High School” was included in the Tax Carnival over at Don’t Mess With Taxes

These two carnivals have tons of great information. Go ahead and check ‘em out.

Thanks Len Penzo and Don’t Mess With Taxes for hosting!